Microfinance for Women in Africa

Empowering Women through Microfinance:

Microfinance institutions are financial services meant to empower people especially women. Their primary aim is to serve as finance institutions that give loans to their clients to set up small business enterprises that will help them sustain a good living.

Microfinance is often defined as financial services for poor and low-income clients. In practice, the term is often used more narrowly to refer to loans and other services from providers that identify themselves as “microfinance institutions” (MFIs). These institutions commonly tend to use new methods developed over the last 30 years to deliver very small loans to unsalaried borrowers, taking little or no collateral. These methods include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes, and an implicit guarantee of ready access to future loans if present loans are repaid fully and promptly.

More broadly, microfinance refers to a movement that envisions a world in which low-income households have permanent access to a range of high quality financial services to finance their income-producing activities, build assets, stabilize consumption, and protect against risks. These services are not limited to credit, but include savings, insurance, and money transfers.

To most, microfinance means providing very poor families with very small loans to help them engage in productive activities or grow their very small businesses. Like us, many poor people need and use financial services all the time. They save and borrow, invest in home repairs and improvements and meet occasional and domestic expenses such as food and school fees. However, there are some 500 million low income entrepreneurs in the world and about 5% have access to financial services. Indeed, the financial services available to the poor often have serious limitations in terms of cost, risk and convenience. As a result, over time, microfinance has come to include a broader range of services; credit, savings, insurance, among others, as the industry has come to realize that the poor and the very poor who lack access to traditional formal financial institutions require a variety of financial products.

The important difference of microcredit was that it avoided the pitfalls of an earlier generation of targeted development lending, by insisting on repayment, by charging interest rates that could cover the costs of credit delivery and by focusing on client groups whose alternative source of credit was the informal sector. Emphasis shifted from rapid disbursement of subsidized loans to prop up targeted sectors towards the building up of local, sustainable institutions to serve the poor. Microcredit has largely been a private (non-profit) sector initiative that avoided becoming overtly political, and as a consequence, has outperformed virtually all other forms of development lending. Indeed, since the 1980s, microfinance programs have improved upon original methodologies and extended beyond conventional thinking. First, microfinance demonstrated that poor people, and especially women, had excellent repayment rates (and often, rates that performed better than those in formal financial sectors). And second, that the poor were willing and able to pay interest rates that would allow the microfinance institutions (MFIs) to cover costs.

Traditionally microfinance was focused on providing a very standardized credit product. The poor, just like anyone else, need a diverse range of financial instruments to be able to build assets, stabilize consumption and protect themselves against risks. Indeed, in many developing countries, self-employment through microenterprise is often the only way to provide for families and the local environment. Thus, we see a broadening of the concept of microfinance. Our current challenge is to find efficient and reliable ways of providing a richer menu of microfinance products.

We do often ask our selves who are the clients of microfinance? The typical microfinance clients are low-income persons that do not have access to formal financial institutions. Their “microenterprises” represent an estimated 80% of the total enterprises in the world, 50% of urban enterprises and 20% of the Gross National Product (GNP) of their countries. Microfinance clients are typically self-employed, often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, among others. Microfinance clients are poor and vulnerable non-poor who have a relatively stable source of income.

Access to conventional formal financial institutions, for many reasons, is inversely related to income: the poorer you are, the less likely that you have access. The poor often obtain financial services from informal financial relationships – credit can be available from commercial and non-commercial lenders, but often at very high interest rates; saving services can be available through savings clubs, credit associations and the like. As a result, the chances are that, the poorer you are, the more expensive or onerous informal financial arrangements. Moreover, informal arrangements may not suitably meet certain financial service needs or may exclude you anyway. Individuals in this excluded and under-served market segment are the clients of microfinance.

Microfinance generally targets poor women because they have proven to be reliable credit risks and when they have the financial means, they invest that money back into their families, resulting in better health and education, and stronger local economies. By providing access to financial services – loans and responsibility for repayment, maintaining savings accounts, providing insurance – microfinance programs send a strong message to households and communities. Studies have shown that women become more assertive and confident, have increased mobility, are more visible in their communities and play stronger roles in decision making.

As the definition of the types of services microfinance encompasses broadens, the potential market of microfinance clients also expands. For instance, microcredit might have a far more limited market scope than say a more diversified range of financial services which includes various types of savings products, payment and remittance services, and various insurance products. For example, many very poor farmers may not really wish to borrow, but rather, would like a safer place to save the proceeds from their harvest as these are consumed over several months by the requirements of daily living.

Another fundamental question asked is how does microfinance help the poor? Microfinance brings the power of credit to the grassroots by way of loans to the poor, without requirement of collateral or previous credit record. Experience shows that microfinance can help the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self-empowerment by enabling the poor, especially women, to become economic agents of change.

Poverty is multi-dimensional, and by providing access to financial services, microfinance plays an important role in the fight against the many aspects of poverty. Access to credit allows poor people to take advantage of economic opportunities – for their homes, their domestic environments and their communities. For instance, income generation from a business helps not only the business activity expand but also contributes to household income and its attendant benefits on food security, children’s education, among others. Moreover, for women who, in many contexts, are secluded from public space, transacting with formal institutions can also build confidence and empowerment.

GAWFA in focus Gambia’s own microfinance institution GAWFA is also playing a crucial role in empowering women. It is a sustainable financial institution that represents the aspirations of women in the vanguard of an evolving financial system. GAWFA aims to gain market leadership within 10 years and build a market share representing at least 50% of low income Gambian women and their enterprises.

The vision and mission for GAWFA is the transformation of the financial and social system of The Gambia, which assures an equitable distribution of productive resources between men and women. It aims to build and maintain viable and sustainable Women’s organization serving as a financial intermediary to enhance the entrepreneurship development of low income women, promote capacity building, eradicate poverty and increase their participation in the Socio economic development of The Gambia. GAWFA’s efforts in women empowerment is one of the most visible efforts for economic development in the Gambia.

GAWFA’s role is to Empower low income women in The Gambia through the provision of non financial services. Offer business, agricultural and consumer loans to low income women individuals and groups. It also offers micro-banking services to low income individuals and families in the urban and rural areas, serving their business, consumption and life cycle needs.Voluntary savings applies both to men and women. The vision of this institution is to build a sustainable financial institution that meets the aspiration of women in the vanguard of an evolving financial system, and regain market leadership by 2020 with a share of at least 50% of the market represented by low Gambian women. The mission of this great institution is to offer innovative financial solutions that contributes to lasting economic and social benefits for low income Gambian women and their families; and create value for their shareholders and stakeholders.

The customers of GAWFA NGO are predominantly low income women individuals and groups residing in the urban and rural areas of The Gambia and either have a business or plan to start a business. Customers also include women’s groups engaged in group economic activities or community investment projects. GAWFA also targets mixed gender groups that are engaged in economic activities or community investment activities, on condition that women represent more than 90% of the group membership.